The Time Needed For Liquidation And Forced Deletion Procedures Has Been Extended Due To Coronavirus

• Published date: 06 July 2020
• Subject Matter: Corporate/Commercial Law, Compliance, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Schoenherr Attorneys at Law
• Author: Ms Kinga Hetényi and Alexandra Bogn'r

On 28 May 2020, the Hungarian Government adopted amendments to the laws on company liquidation and forced deletion procedures to cushion the impact of the global coronavirus pandemic on the economy.

1. Changes related to liquidation

Liquidation is initiated when a company is unable to meet its financial obligations and pay off its debt. However, in Hungary the courts do not apply an actual insolvency test before ordering liquidation but check only whether certain criteria have been met.

The criteria examined by the court include, among others whether the debtor has failed to pay upon an enforceable judgment or an undisputed contractual debt within 20 days after the due date and despite a written warning by the creditor, in which the creditor must have granted an additional payment deadline. As a result, liquidation is often used as a debt collection method.

The new rules concern cases where liquidation is initiated by the creditor based on the fact that the debtor has not contested the debt.

	General rules	Rules from 29 May 2020
If the debt exceeds	HUF 200,000 (approx. EUR 600)	HUF 400,000 (approx. EUR 1,200)
liquidation may be requested by the creditor	After the expiry of the additional deadline granted in the written warning.	After the expiry of the additional deadline granted in the written warning + an additional 75 days.
Before liquidation is ordered, the court may allow a grace period at the request of the debtor.	The grace period granted by the court may not exceed 45 days.	The grace period granted by the court may not exceed 15 days.

As seen from the above comparison, the new rules were adopted mostly in favour of the debtors, while the only good news for creditors is the shortened grace period the courts may allow.

2. Ex officio company terminations and forced deletion procedures are suspended until 31 October 2020

As of 29 May 2020, all ex officio company termination and forced deletion procedures opened due to serious noncompliance are suspended until 31 October 2020. This is important, because if such procedures are completed by the court deleting the company in question this may lead to various negative consequences including, for example, the piercing of the corporate veil, personal liability of managing directors and the ban on the managing director being reappointed.

Below we summarise the three types of cases affected:

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